sales forecasting Flashcards
what is sales forecasting?
sales forecasting in the projection of achievable sales revenue based on historical data, market trends and sales estimates
Why is sales forecasting useful?
- helps set goals and measure progress
- helps cash flow planning and financial decision making
- motivates managers to meet targets
- helps workforce planning by estimating workforce needs
what factors can impact the accuracy of sales forecasting
- economic factors (inflation, recession)
- competition (pricing strategies and brand loyalty)
- unpredictable events (global crises and natural disasters)
- data limitation (outdated or bias info)
What are the two main types of sales forecasting?
- quantitative forecasting: uses historical data and mathematical models/ statistics
- qualitative forecasting: uses expert opinion, market knowledge and intuition
How do you calculate a three-point moving average?
- take three consecutive years of sales data
- add the three values together
- divide by 3 to get the moving average
How is a scatter graph used in sales forecasting?
- a scatter graph plots past sales data
- a line of best fit is drawn to show trends
- a slope helps predict future sales trends
What is extrapolation in sales forecasting?
- extrapolation uses past trends to predict future sales
- assumes patterns remain stable
- e.g. is sales increased by 5% yearly, the same growth is expected for next year
what are the different types of correlation?
- positive correlation: sales increase as another factor increases (marketing)
- negative correlation: sales decrease as another factor increase (higher prices)
- no correlation: no relationship between sales and the factor analysed
advantages of qualitative forecasting?
- uses market knowledge and expert insight
- helpful when historical data is limited
- can identify sudden shifts in consumer trends
what are common qualitative forecasting methods?
- intuition: managers rely on experience and gut feelings
- brainstorming: groups discuss trends and market conditions
- Delphi method: experts provide sales prediction through discussion
How is brainstorming used for sales forecasting?
- employees with market experience discuss future trends
- past product life cycles and customer feedback is analysed
- generates new ideas and perspectives
disadvantages of qualitative forecasting?
- subjective and may be biased
- lacks statistical accuracy
what is seasonal analysis and why is it important?
- examines monthly or weekly sales patterns
- helps a business prepare for peak sales periods (toys before Christmas)
- useful for inventory and marketing planning
what is the difference between trends and cyclical analysis
- trend analysis: examines long-term data to determine if sales are increasing, decreasing or stable
- cyclical analysis: identifies sales fluctuations based on economic cycles (demand for luxury goods rising after recession)
what is random factor analysis in sales forecasting?
- identifies unusual spikes in sales
- e.g. a sudden ice cream sales increase due to heatwaves not marketing
- helps business separate random factors from actual trends
